The Cosmos ecosystem is designed with the vision of creating an Internet of Blockchains. The idea behind this architecture is that every project should be able to build its own dedicated blockchain, customize it extensively to suit its application needs, and still maintain security while remaining interoperable with other blockchains. The Cosmos SDK and the Inter-Blockchain Communication (IBC) protocol were both designed to enable this vision. This architecture indeed addresses many issues found in other blockchain frameworks, such as limited scalability, network congestion, and lack of flexibility for developers. However, this approach also comes with its own set of challenges.
Current Challenges
For applications that already have strong traction — like dYdX — it makes sense to build a dedicated application chain. However, for early-stage applications, developing a blockchain can be difficult because it requires significant technical expertise and is time-consuming.
Since each blockchain is responsible for its own security, they need to bootstrap their own validator sets to secure the network, which is resource-intensive and time-consuming. Additionally, using a new token to achieve strong security is impractical because until the application gains significant traction and its token appreciates in value, the total capital staked by validators remains quite low. This creates a chicken-and-egg problem: it’s hard for an application to gain traction until the chain is secure. This slows down iteration and hinders early developers from testing novel use cases in Cosmos.
Low liquidity, limited security for Cosmos smart contract platforms, and competition from high staking rewards have also caused Cosmos DeFi adoption to lag behind other ecosystems.
Alignment with the ATOM Community
A pure app-chain approach also does not lead to any sustainable value accrual for the ATOM token, resulting in a lack of alignment with the ATOM community. While there is some alignment through airdrops — since most new projects in Cosmos airdrop their tokens to ATOM holders — this does not create an ongoing, sustained relationship.
The Neutron Approach
To tackle these challenges, Proposal 72, put forward in June 2022, signaled soft consensus for Replicated Security (RS). RS is a shared security system that allows larger chains — such as the Cosmos Hub (the provider chain) — to secure smaller chains (the consumer chains).
Using IBC, the provider chain sends a series of messages to the consumer chain’s consensus engine, informing it about which validators participate in its validator set and what voting power they have, based on their stake on the provider chain. In exchange, the provider chain collects fees and revenue from the consumer chain as part of a flexible security agreement.
Neutron is the first consumer chain to leverage the Cosmos Hub as its provider chain. Proposal 72 also allocated 150,000 ATOMs from the community pool to fund development and support RS-enabled projects like Neutron, accelerating this evolution.
By launching as a consumer chain under Replicated Security, Neutron:
Neutron is a permissionless blockchain that allows anyone to easily launch their application using CosmWasm smart contracts. It lets projects leverage RS as a smart contract feature without imposing extra costs on the Hub. Now, projects can deploy in the Cosmos ecosystem without worrying about security or investing excessive time and resources in blockchain development.
Neutron is designed to nurture a robust cross-chain DeFi ecosystem and strengthen ATOM’s position as the base asset of Cosmos. This is achieved by harnessing the power of Interchain Accounts (ICA), Interchain Queries (ICQ), CosmWasm smart contracts, and modular governance. ICA and ICQ functionalities can technically be built today without dedicated modules, but doing so requires chain-level logic coding. ICA and ICQ standardize and simplify these capabilities at the smart contract level, making applications more programmable.
Interchain Accounts (ICA)
ICA enables one blockchain to securely control an account on another blockchain using IBC. Cosmos blockchains can access another chain’s application functionalities and perform any native operations on that chain. Before ICA, if a user had tokens like $ATOM, $OSMO, or $EVMOS staked across different chains, they needed to claim rewards on each chain individually. With ICA, they can perform these actions from a single chain. This is particularly useful for liquid staking applications like Lido, which will soon launch on Neutron.
Interchain Queries (ICQ)
ICQ allows an application on Chain A to query Chain B and execute transactions on Chain A based on the response. Through ICQ, queries are packaged as IBC packets on the query chain. If an IBC channel exists with the target chain, the IBC packet containing the query is relayed to the target chain. Upon arrival, the ICQ module unwraps the packet, reveals the query, and executes it at the application layer as if it were a normal internal query. Finally, the response is sent back to the querying chain via a return IBC packet.
ICA and ICQ can work together to enable multi-chain liquid staking. ICQ can be used to check liquid staking reward balances on another chain, while ICA can transfer the rewards back to a delegated account on the host chain.
Governance and Liquidity Modules
Neutron’s modular governance is designed to prevent voter fatigue, allow the chain economy to adapt to market conditions, and incentivize users to supply liquidity. In return for bonding NTRN tokens, users receive voting power in a DAO that controls the treasury or community pool. Tokens in the reserve pool are non-liquid and are released based on on-chain activity. High on-chain activity and revenue result in more tokens being released from the reserve. These tokens don’t go directly into the treasury but are distributed via an allocation module. This module can direct a portion of tokens to liquidity modules, which can then funnel tokens into various liquidity pools. Users can decide how to allocate tokens across pools based on their voting power. This creates strong incentives for users to provide liquidity. They can earn voting power by providing liquidity and use that voting power to programmatically direct liquidity from the reserve into their chosen pools.
A New Era for DeFi
ICA and ICQ together unlock new composable utilities. By leveraging ICA, ICQ, modular governance, and CosmWasm, Neutron will facilitate application development, enabling users to supply liquidity, lend, exercise governance, unbond, and more using native and liquid staked ATOM.
Astroport is a great example of the kind of cross-chain application being built on Neutron. Astroport started as a single-chain protocol on Terra and has since expanded to Neutron and Injective, with plans to launch on Sei Network soon. As a next-generation AMM and DEX, Astroport embraces IBC to deliver a unified cross-chain experience and supports cross-chain governance, token transfers, and fee collection.
Other projects integrating with Neutron include:
Primitives like DAODAO, Timewave, and Gitcoin may also launch on Neutron, equipping the Hub with tools to build secure, programmable protocols with other chains and treasuries, such as token swaps, quadratic funding rounds, lending protocols, protocol-owned liquidity, and more.
Conclusion
Neutron’s high security, neutral positioning, and purpose-built cross-chain smart contract capabilities make it an ideal home for DeFi and other cross-chain dApps. Neutron empowers developers and users to transact and innovate without boundaries or restrictions.
LongHash Ventures is committed to playing an active role in Neutron’s adoption and growth by engaging in governance forum discussions and partnering with the ATOM Accelerator DAO to launch the AEZ Accelerator and Builders Scholarship. Our accelerator arm, LongHashX, has incubated over 70 projects with ecosystems like Polkadot, Filecoin, and Axelar, and will now support 25–30 startups and accelerate the development of the five most promising projects building in Neutron and the Atom Economic Zone. We firmly believe Neutron is ushering in a new era for Cosmos and is perfectly positioned to drive the next generation of advanced, composable cross-chain applications.
About LongHash Ventures
LongHash Ventures is a leading Web3 investment fund and accelerator, focused on catalyzing the growth of the Web3 ecosystem. Our venture fund invests in early-stage Web3 protocols, while our LongHashX Accelerator partners with ecosystems and protocols to fast-track the growth of early founders.
About LongHashX
LongHashX is one of the world’s leading Web3 accelerators, with the strongest network in Asia. We partner with leading Web3 ecosystems and infrastructure protocols to build developer communities through funding and venture building with early-stage founders.